Federal Payroll Tax Obligations
When you hire your first US employee, you become responsible for collecting, matching, and remitting several federal taxes. Getting this wrong attracts the Trust Fund Recovery Penalty — the IRS can hold business owners personally liable for unremitted payroll taxes.
FICA Taxes
FICA (Federal Insurance Contributions Act) covers Social Security and Medicare:
- Social Security: 6.2% withheld from employee + 6.2% employer match = 12.4% total, on wages up to the annual wage base ($176,100 in 2025)
- Medicare: 1.45% withheld from employee + 1.45% employer match = 2.9% total, on all wages with no cap
- Additional Medicare Tax: 0.9% on employee wages above $200,000 — withheld from employee only, no employer match
Federal Income Tax Withholding
You must withhold federal income tax from each employee's pay based on their Form W-4. The withholding amount depends on the employee's filing status, number of claimed allowances, and pay frequency. The IRS Publication 15-T provides withholding tables.
FUTA — Federal Unemployment Tax
FUTA is 6% on the first $7,000 of each employee's wages, paid entirely by the employer. If you pay your state unemployment taxes on time, you receive a credit of up to 5.4%, reducing the effective federal rate to 0.6% — maximum $42 per employee per year.
Deposit Schedules
How often you deposit withheld income tax, Social Security, and Medicare taxes depends on your lookback period:
- Monthly depositor: Deposits due by the 15th of the following month
- Semi-weekly depositor: Wages paid Wednesday–Friday must be deposited by the following Wednesday; wages paid Saturday–Tuesday by the following Friday
- Next-day rule: If tax liability in a single day exceeds $100,000, deposit by the next business day
Forms You Must File
- Form 941: Quarterly payroll tax return — due April 30, July 31, October 31, January 31
- Form 940: Annual FUTA return — due January 31
- Form W-2: Employee wage statement — due to employees and SSA by January 31
- Form 1099-NEC: For independent contractors paid $600 or more — due January 31
State Payroll Taxes
Every state has its own income tax withholding requirements (except Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming which have no state income tax). Most states also levy state unemployment insurance (SUI) tax on employers. Register with your state's department of revenue and workforce agency when you hire your first employee.
